Texas Energy Arbitration Disputes

Key Takeaways

• Texas courts enforce arbitration agreements strictly as written, making precise drafting critical.
• Incorporating AAA or similar rules can shift arbitrability decisions from courts to arbitrators.
• Class arbitration and claim carve-outs must be expressly stated to avoid unintended outcomes.

Arbitration prescribed in the parties' pre-dispute contract is the most traditional form of private dispute resolution.

PROS:

1. private and confidential
2. pick one or three arbitrators / qualifications
3. enforceable in court / finality
4. governing rules and private organizations (AAA and JAMS) to conduct hearings
5. get to select your "judge"
6. class action waiver

CONS:

1. no appeal
2. paying private organizations and arbitrator fees expensive and not cheaper than litigation
3. if above organizations are specifically referenced in the parties' contract
4. arbitrability issues go to arbitration panel, not courts

*Pre-dispute contract containing arbitration clause should dictate arbitration details.

Arbitration:

Jody James Farms, JV v. The Altman Group, Inc. and Laurie Diaz 547 SW 3d 624

Tex: Supreme Court, 2018

The Texas Supreme Court's opinion is instructive:

• While recognizing the not so novel proposition that arbitration is a creature of contract between consenting parties, the Court rules that whether a claim against a non-signatory must be arbitrated is a matter for the trial court, not an arbitrator. Moreover, the Court held that reference to the rules of the American Arbitration Association (AAA) is insufficient to show a clear intent to arbitrate the issue of arbitrability.
• TAKEAWAY: If you indeed want an arbitrator to make any threshold decision of arbitrability as to the parties' claims or binding non-signatories, the parties' arbitration agreement must explicitly state as much.
• BUT IT IS NO LONGER GOOD LAW...

Total Energies E&P USA, Inc. v. MP Gulf of Mexico, LLC

Tex: Supreme Court, 2023

• Who resolves the dispute as to whether signatory parties to a written contract permit a judge or arbitrator to make the threshold decision of arbitrability? The Texas Supreme Court has not changed its mind and unequivocally told us.
  • Arbitration is a matter of contract, and a provision as to how to conduct arbitration can be specifically spelled out in the parties' operative contract (e.g., discovery limitations and expert disclosures). By agreeing to arbitrate their controversies in accordance with the AAA rules, the parties "clearly and unmistakably" delegated all arbitrability issues to the arbitrator¹, including the forum and scope of the arbitration provision and a trial court must defer to the arbitrator.
  • TAKEAWAY: We believe that whether AAA, JAMS, ICC, ICDR, or any other arbitral body is administering the matter which has similar written articulated rules, the holding and result will be the same. Therefore, do not tie your client to agree to rules governing the arbitration proceeding without reading and understanding what they provide and any nuances, and make sure the jurisdiction grant imposes a mandatory "shall" requirement, as opposed to a "may" suggestion.
  • CONUNDRUM: You want an administrative body to administer your arbitration because those same rules address, among other things, discovery and scheduling issues; as a result, if you are wanting to expressly exclude certain matters from the arbitration process (e.g., equitable or injunctive relief, certain IP matters, punitive damages, or specific claims), this MUST be explicitly identified and carved out in the parties' contract.

Class Arbitration:

Stolt-Nielsen S.A. et al., v. Animalfeeds International Corp. 559 US 662, 130 S. Ct. 1758, 176 L. Ed. 2d 605 – U.S. Supreme Court, 2010

• Background:
  • Animalfeeds sought arbitration on behalf of a class of purchasers of parcel tanker transportation service
  • Held: No Class Arbitration of their antitrust dispute where the parties never agreed to the same, and their contract was silent as to class arbitration and inconsistent with the FAA.
  • While boldly stating that "Arbitration is a matter of consent, not coercion."
  • But wait a couple of years...

Oxford Health Plans LLC v. John Ivan Sutter 569 US 564, 133 S. Ct. 2064, 186 L. Ed. 2d 113 U.S. Supreme Court, 2013

• Sutter and similarly situated doctors sought arbitration
• Background:
  • Oxford moved to compel arbitration of Sutter's claims, relying on the following clause in their contract: "No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the rules of the AAA with one arbitrator."
  • Held: Yes, Class Arbitration related to Oxford's failure to make full and prompt payment to doctors who provided medical care to members of its network in violation of agreements and state law.

Robinson v. Home Owners Mgmt. Enterprises 590 SW 3d 518

Tex: Supreme Court, 2019

• Background:
  • This arbitration dispute between homeowners and their home warranty company began as an individual action for construction-defect damages and evolved into a putative class action complaining about "deliberately overbroad" releases the warranty company allegedly "demanded" before making covered repairs.
  • Finding that to date every one of these courts – the Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, and Eleventh Circuits – has concluded that class arbitrability is for the courts to determine as a gateway matter absent clear and unmistakable language delegating arbitrability matters to the arbitrator.

Footnote

1 AAA Commercial Rule 7(a) provides that the arbitrator "shall" have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.